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Governmental and Private Licensing

A license or permit is an authorization to do something that the person would not be entitled to do without the license or permit. It may derive from a governmental agency (such as a license to practice medicine or law) or it may derive from an private entity (such as licensing someone’s right to sell a certain product or service.)

A license is simply the right to do or to use something. The word, from Latin, means "permission," thus implies that a license is given by a party who controls something to another person. Licenses divide into three basic forms: 1) the right or permission to carry out an activity otherwise regulated or prohibited by government; 2) the right to use a name, image, or representation (including a brand) in packaging, promotion, signage, marketing, selling, and similar contexts; and 3) the right to use and apply proprietary know-how, whether patented or not, for any legal purpose, including its manufacture, distribution or integral embodiment in products. Licensing activity comes in two forms: Licensors give licenses to others; licensees receive licenses from others.

As to government licensing, license fees may be imposed, but must be reasonable and not so expensive as to prevent persons from the right to pursue a trade or occupation. Licensing may be used to raise revenue or to fund the regulation of activities. Any qualifications attached to the issuance of the license must meet constitutional due process requirements and not be discriminative. Training, educational, or financial responsibility qualifications are appropriate to be required. Background information on the applicant may be required when reasonably related to the issuance of the license and not based upon discriminatory reasons.

The issuance of a license may also be conditioned on the action of other government agencies, such as requiring a state license before the applicant will be allowed a local license, or requiring other agencies, such as police, fire, and health departments, to approve the application before the license will issue.

In the private realm, one may license to another any right or asset one owns and may set negotiated terms and conditions, usually by a written contract. See our companion article on License Agreements-the Basics.

Terminology

The word itself, licensing, does not cover all forms and instances of the underlying relationship. For example, users of other people's patents are typically "licensed" to do so, but users of other people's copyrights are said to have "permission" to do so. In municipal government, many activities require "permits." These are functionally identical to licenses in that the permit holder must qualify in some way and is subject to rules.

In commercial relationships a franchise is said to be "held" ("franchise holder"), but to franchise someone is equivalent to two forms of licensing (image and know-how). "Certification" is a widely used alternative, as in "Certified Public Accountant. The CPA, however, is typically licensed by the state. "Certification" may connote something more advanced or refined than "licensing," hence is used in relation to professional permits—but professions well known to be of a high order of skill disdain from using the term. It is impossible to find a "certified physician" or "certified attorney" even though they are all licensed by the state.

Government Licensing:

The most common form of licensing is the governmental kind. After all, most adults are licensed drivers. But state government, in addition, licenses many skilled and professional occupations, including those that form the core of many small business activities. Small business, therefore, is most likely to be touched by this form of licensing. Municipal government issues all kinds of permits, equivalent to licenses. In Miami-Dade County, Florida, for instance, the county requires that all businesses have "occupational" licenses—but here in the sense of occupying a store. In San Francisco, any business must obtain a license to engage in business, paying an annual fee.

A large number of occupations are subject to license. In the state of Rhode Island, for example, the state licenses 149 occupations. Thirty-two of those 149 occupations are architects and attorneys; barbers, but also beekeepers and boxers; chiropractors; dieticians, also dentists, and anyone associated with dog racing; electricians as well as professional engineers; funeral directors and buyers of fur at wholesale; hairdressers, cosmetologists, estheticians, and manicurists; investment advisers; occupations associated with the sport Jai Alai; lottery agents and livestock dealers; massage therapists; every kind of professional level nurse and midwife; occupational therapists and opticians; plumbers and physicians; real estate brokers; speech-language pathologists and many school-related occupations; travel agents and tattoo artists; veterinarians; wildlife rehabilitators; and even professional wrestlers.

The rationale behind licensing of occupations is obviously varied and based on the enforcement of health, safety, commercial, and other laws. Most businesses affected by licensing rules learn of these requirements in the course of qualifications or startup. Information on rules is, however, widely and easily available. The small business owner wishing to check on his or her need for such licensing might begin at the Web site of America's Career/InfoNet where access is provided to every state's occupational licensing requirements.

The Private Realm of Business Licensing:

Image Licensing:

Marketing of goods and services relies, in the first place, on capturing a potential customer's attention and then holding it by inducing a favorable reaction. Famous icons—be they celebrities, cartoon figures like Mickey Mouse, or widely recognized symbols like the letters NFL, GM, IBM or the five interlocking rings of the Olympics—have a function in attracting attention and in passing on the values that they represent to objects or messages to which they are attached. Icons are created in commerce by arduous performance and promotion, in which case they are brand identities; they are also "borrowed" or "recruited" by associating famous names with products. For purposes of brevity, all of these recognizable symbols may be summed up as "images." Images are licensed for the purpose of helping people market goods.

Underlying such licensing is law which protects brands, logos, and other trade-marked symbols from use by others; individuals also have the right to permit or to restrict their names from commercial exploitation by others. See our article on copyright. Thus, for instance, a newspaper may use the name Robert Redford in a headline but cannot label its paper as "The paper Redford reads each day" without his express permission. Should such permission be forthcoming, the paper would be licensed to use the name.

Know-How or Technology Licensing:

Many inventors and technology companies use patented methods and closely-held practices as the basis of licensing activity. Under a know-how or technology license, the licensee is enabled to deploy a design or use a patented process or confidential proprietary method in his or her own manufacturing and/or marketing and/or production activities. The practice is as old as patent law and is present in all of the modern arts of production. Wherever the focus of invention is most intense, there new technologies spring up and are spread by licensing.

In the mid-2000s these techniques were mushrooming in electronics, software, pharmaceuticals, genetic manipulation, alternative energy, and exotic materials technologies, while, at the same time, continuing in traditional fields like mechanics and chemical and petrochemical processing.

Whereas image licensing is likely to be rare in small business, virtually every small business engages in licensing some know-how—although the vast majority would be surprised to learn this. So would the vast public engaged in the same activity: the use of computer software takes place under a license that comes with the software itself. The licensing agreement explicitly prohibits using a purchased package on more than one machine.

One licenses products in everyday commerce, from “renting” a car to software to watching a program on a cable channel. In each case, one obtains a license to use (and at times reuse or transfer) property belonging to another.

Such practices are extremely common and also difficult to police. In the international field piracy is a constant refrain. Confusion appears to reign domestically. As Computer Trade Shopper reported, "SMEs are failing to recognize the implications of not meeting licensing requirements, with only 56 per cent having a formal licensing policy. According to research by PC World Business (PCWB), 58 percent did not keep records of the software they owned or file license certificates, but 87 percent believed they were compliant." (SMEs are "small to medium enterprises.")

Pressures are mounting to bring small business into compliance. Under the name of the Business Software Alliance (BSA), Microsoft and its allies continue to bombard small businesses with anti-piracy mailings demanding that customers audit their licensing compliance.

Licensing In, Licensing Out:

Using software purchased from others—or operating a proprietary process under a license—is to be "licensing in." But the small business may also have an opportunity to "license out" if it has made a useful invention which may be of interest to others. In most cases the activity of licensing others is a new business in its own rights with unique activities and problems, of which the first may be patenting the invention itself to secure all rights to the new art. It is also vital if we are speaking of trade names, trademarks, trade dress and the like to perhaps copyright the materials and to establish proprietary rights so that the license can be achieved. See our article on Copyrights, Trademarks and Patents.

A recurring theme in all protection of intellectual property is to avoid having others use it without permission since if that occurs long enough and without protest, the proprietary rights can be voided. A written license agreement granting rights to another to use the product or trade dress is vital to avoid loss of the proprietary rights. To delay enforcement is to risk all rights.

The Licensing Agreement:

A license is a contractual right that gives someone permission to do a certain activity or to use certain property owned by someone else. The licensing agreement is an agreement between two enterprises allowing one to sell the other's property such as products or services and to use their name, sales literature, trademarks, copyrights, etc. in a limited manner. Besides license agreement terms, federal laws provide stiff civil and criminal penalties for pirating and other unauthorized use of other's property.

Typical issues one confronts when drafting such an agreement involves what rights are granted, for how long, what restrictions exist on use of the license (territory or particular uses) what limits exist on competition, what acts the licensee must take to protect the loss of the license to third parties and, of course, what license fee or royalties will be paid to the licensor. Additionally, all the other typical terms required in an American contract should be inserted.

Conclusion:

Governmental licensing is an inherent part of any personal or business activity and permeates all of our lives. More and more activities require licensing from running a corner store to practicing dentistry and the wise individual will take time to master the license requirements for business and personal activity.

In the private business realm, licensing is an excellent method to increase the value of a product or know how or image owned and to reap the benefits with a minimum of work. The key aspect is to make sure you aggressively protect your property so that a license for its use is necessary. This requires you to master the basics of copyright, trademarks and patents and to effectively and promptly take those actions necessary to protect your property. It also requires a well drafted license agreement and close supervision of the licensee to make sure the terms of the license are adhered to. Some sophistication may be required since many jurisdictions, such as China, Russia, much of Africa and parts of America do not effectively protect license rights and other means may be required to assure the protection of your property.

Stimmel, Stimmel & Roeser

Founded in 1939, our law firm combines the ability to represent clients in domestic or international matters with the personal interaction with clients that is traditional to a long established law firm.